LACK OF GOOD FAITH EXPLANATION BY ITSELF NOT ENOUGH FOR INEQUITABLE CONDUCT:

(d/b/a) S&G Tool Aid Corp. v. (d/b/a) Astro Pneumatic Tool Co. (Fed. Cir. 05-1224, 1228, February 27, 2006):

S&G filed a declaratory judgment against Astro, alleging that S&G's customers did not infringe Astro's US Patent 5,259,914, and also alleged (among many other things), that the patent was unenforceable due to inequitable conduct. On summary judgment, the district court held that "there was clear and convincing evidence of materiality and intent to deceive" the the USPTO by Astro during prosecution of the application which rendered the patent unenforceable.

The court found that a competing model die grinder had been available for twenty years (the Model 220), was known to the patentee and was "material prior art" that had not been submitted to the PTO. The Model 220 allegedly contained many of the same components that were present in the ’914 patent. As a result, the court found it “clear that the Model 220 would have been material to the examiner’s analysis.” The court also noted that the Model 220 was not cumulative of other prior art before the examiner because it had elements that were not found in other prior art references. Inferring intent from the materiality of the disclosure, the court found that Astro engaged in inequitable conduct.

The Federal Circuit reversed this holding:

The issue central to the disposition of this case is whether a lack of a good faith explanation for a nondisclosure of prior art, when nondisclosure is the only evidence of intent, is sufficient to constitute clear and convincing evidence to support an inference of intent. We agree with Astro and conclude that a failure to disclose a prior art device to the PTO, where the only evidence of intent is a lack of a good faith explanation for the nondisclosure, cannot constitute clear and convincing evidence sufficient to support a determination of culpable intent.

[T]he only evidence that the district court relied upon in its determination that Astro intended to deceive the PTO was Astro’s failure to offer a good faith explanation of its nondisclosure of the Model 220. To be sure, just as a good faith explanation can be presented as evidence to refute an inference of intent, and usually is so presented, the absence of such an explanation can constitute evidence to support a finding of intent. When the absence of a good faith explanation is the only evidence of intent, however, that evidence alone does not constitute clear and convincing evidence warranting an inference of intent.

In light of all the facts and circumstances surrounding the applicant’s conduct, we conclude that Astro’s acts do not demonstrate on summary judgment that Astro had a culpable intent during prosecution. “Intent to deceive should be determined in light of the realities of patent practice, and not as a matter of strict liability whatever the nature of the action before the PTO” . . . The district court’s finding of inequitable conduct based on the nondisclosure of the Model 220 essentially amounted to a finding of strict liability for nondisclosure. Such is not the law. Even if there were evidence of gross negligence in nondisclosure, which was not found, that would not necessarily constitute inequitable conduct.